Less is More

It’s absolutely mind-boggling to think that Congress can successfully regulate something as complex as the entire financial industry. I don’t believe it for a second. These are the same legislators who just lost billions in TARP funds. These are the same political leaders who directly and purposefully threw money away on failing companies around the U.S. And now we are expected to believe they understand the investment industry well enough to regulate it?
We are on a very dangerous precipice. In a grand attempt to save the economy, Congress is very close to being responsible for ending it. The entire purpose seems to be to construct a risk free investment market. But such a thing is impossible. Money is made in investing because there is risk.
The financial markets, like all other markets, work through innovation. Innovation is a risky process. Some ideas work well; some will utterly fail. If I, as an investor, enter such a market, I am demonstrating a willingness to take the risk in order to earn a better return.
It is a laughable claim to say that free market ideas caused the recent financial mess. The legislature has had its hands in the mix for years. Those in the positions of government will always claim that the market is failing. They have a vested interest in doing so. No one enjoys being in the position of having to admit that their actions were wrong. Congressmen are in that position right now. The way out is to say that there has not been enough regulation. When the added regulations are shown to fail in the future, they are given the opportunity to saw we need still further regulation.
The real problem is that Fed policy and legislative banking regulations have distorted market signals and changed the incentive structures of those engaged in the financial world. Further regulations will cause further distortions, causing slower growth or bigger crashes in the future.